Taking on a leased solar system with house purchase

6 Replies

Hi Everyone,

We are looking to buy a property for rental and it's great except the seller obtained a solar panel from Solar City (SC) through a lease. The seller discounted the price of house a bit but asked us to transfer the lease to us (they wouldn't take it with them). Solar lease was initiated in early 2016. House is in Daly City, CA just south of San Francisco.

Has anyone had any experience with taking on such a lease, and any issues it may have created for a rental property? Under the 20-year power purchase agreement we have to pay SC for electricity usage at fixed rate per kWh escalating every year. SC covers maintenance but we have a few obligations too including maintaining Internet connection even if house is vacant, etc.

We really like the house and think we are getting a bit of discount for the solar being there, so want to make this work. I'm thinking not to prepay the lease only because it is producing cheaper electricity which can be a benefit to tenants.

Would anyone have any advice for this type of setup?

Thanks,
Pratish

@Pratish Halady

The bottom line is solar is saving a lot on electric bills and it makes your investment home much more desirable.

The issue that you haven't come across yet is that SC will have a lien on the home.  It's called a fixture lien and you need to have the seller call the SC and have that temporarily removed for the purchase or refinance if you choose to in the future.  If you don't that 5 - 20K lien will have to be paid and it will be a major headache on title documents.  

Take care of this up front Sir!

@Shaun Weekes thanks for that advice. Indeed after now re-reading the PPA after your post, there is a "fixture filing" on the solar panel itself. I contacted SC and the seller and they are working on getting the approvals to have that lease transferred to us. Hopefully that should resolve that problem. Thanks for bringing it up.

Hopefully that's the only issue! I read a few horror stories about these solar leases on the Internet, but so far seems ok and SC is being helpful.

Hi @Pratish Halady ,

Does it have a "buyout price" on it? Essentially you are preparing to pick up this service you will be paying for out of pocket (profit) to SC. Your tenants will be paying the electric bill to whom? Are they just receiving discounted electric and you are subsidizing it with your payments to SC?

@Mike Cumbie there is a tenant there currently and they are getting "free" utilities although their rent is about $200 higher than market, so in a way they pay. When this tenant is up for renewal I actually want to keep their rent as is but decouple electricity only because it aligns incentives to keep electricity cost down.

The payment to SC appears to be at a lower rate per-kWh than the published grid rate for Daly City (15c for SC vs 15.39c for grid). But this could easily change and is not much different

There is a buyout price calculated on NPV basis but it seems high when I calculate it (over $20k). Do you think it's better to buy out rather than keep the lease? I was hoping to save the money but maybe I haven't considered all the issues.

Your best solution is have the owners take it with them to their next home and be done with it . Here in NV the energy company stopped reduced the subsidy rates forcing SC and other companies to close up shop 

@Steven Picker thanks and indeed I tried to do that, but they're not willing to do so. Ended up dropping purchase price by $10k as a result, which is roughly half the breakage cost (as calculated based on NPV per the PPA).

Problem now is it requires me to maintain Internet connection and PPA is partly take-or-pay so it raises my vacancy costs to maintain utilities.

I may just try it for now and break the PPA later if it becomes too annoying. Not sure.

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